2022 FC, 2022 FC 1550

Date: 20221114 Docket: T-1194-20 Citation: 2022 FC 1550 Toronto, Ontario, November 14, 2022 PRESENT: The Honourable Madam Justice Furlanetto BETWEEN:DERMASPARK PRODUCTS INC.Plaintiff/Defendant by CounterclaimandPRESTIGE MD CLINIC, SHEKARSARAEI SINA, SALEHI MOHAMMAD REZA, NEMATPOOR ZAHRA and SAFARIAMIN ATEFEHDefendants/Plaintiffs by Counterclaim ORDER AND REASONS [1] The Plaintiff brings this motion in writing under Rules 51 and 369 of the Federal Courts Rules [Rules] to appeal the Order of theCase Management Judge [CMJ], dated June 6, 2022 [Order], arising from a motion to strike and a motion to amend the claim, whichwere heard together.

The Plaintiff appeals only that part of the Order (paragraphs 2 and 5, and the corresponding reasons at paragraphs64 to 75) that struck the Plaintiff’s claim against the individual defendants, Shekarsaraei Sina, Salehi Mohammed Reza, NematpoorZahra and Safariamin Atefeh [collectively, the Individual Defendants], without leave to amend, and that awarded the Defendants costs ofthe motions in the amount of $5,000. [2] The Plaintiff asserts that the CMJ erred in law by applying the principles from Mentmore Manufacturing Co, Ltd v NationalMerchandise Manufacturing Co (1978), (FCA), 40 CPR (2d) 164 [Mentmore] at 174, which it says pertains only tothe personal liability of a corporate officer or director.

The Plaintiff asserts that the Individual Defendants are partners, not corporateofficers or directors.

It also asserts that the CMJ erred by misapprehending the facts and concluding that the Defendant, Prestige MDClinic [Prestige], is a corporation when it is a general partnership and that the Individual Defendants are officers or directors of acorporation when they are general partners of Prestige. [3] The Plaintiff argues that the CMJ struck the claim as against the Individual Defendants when this relief was not requested and erredby awarding costs that were "“disproportionate to any prejudice suffered, that did not align with the outcome of the motion and bymaking them payable forthwith”". [4] For the reasons set out below, I find that the CMJ erred in striking the claim as against the Individual Defendants without leave toamend.

As such, the appeal relating to that aspect of the Order will be allowed. However, with respect to the issue of costs, I find that noerror of law or palpable or overriding error was made and that the costs award should stand. I.

Background [5] The underlying proceeding is an action for trademark and copyright infringement that seeks, amongst other relief, a declaration thatthe Defendants have infringed the trademark rights and copyright of the Plaintiff and of the manufacturer of the products the Plaintiffsells. [6] In March 2022, both the Plaintiff and the Defendants filed motions in writing, which were determined together. The Plaintiff’s motionsought to amend the statement of claim to add the manufacturer as co-plaintiff. The manufacturer had previously been removed as aplaintiff through prior amendment.

The Defendants’ motion sought to strike the claim, without leave to amend, or in the alternativesought particulars of the claim. As part of its responding motion record to the Defendants’ motion, the Plaintiff included a furtherproposed amended statement of claim [Proposed Claim], which is the version of the claim that the CMJ considered on the motions. [7] On June 6, 2022, the CMJ issued the Order in which he struck the Proposed Claim, allowing leave to amend certain paragraphs andawarding costs to the Defendants in the amount of $5,000.

The paragraphs relating to the Individual Defendants were struck, withoutleave to amend. II. Issues and Standard of Review [8] The following issues are raised by this appeal motion:

a) Did the CMJ make a reviewable err in striking the claim as against the Individual Defendants without leave to amend?

b) Did the CMJ make a reviewable error relating to the costs award? [9] The parties agree that the applicable standard of review for an appeal under Rule 51 of the Rules, which relates to a discretionaryorder of a Prothonotary (now Associate Judge) is set out in Hospira Healthcare Corporation v Kennedy Institute of Rheumatology, 2016FCA 215 [Hospira] at paragraphs 66 and 79.

Such orders are to be reviewed on the civil appellate standard (Housen v Nikolaisen, 2002SCC 33) as follows: (1) the correctness standard for questions of law and questions of mixed fact and law if there is an extricable legalprinciple at issue; and (2) palpable and overriding error for factual conclusions and questions of mixed fact and law. A palpable andoverriding error is "“one which is obvious and apparent, the effect of which is to vitiate the integrity of the reasons”": Maximova vCanada (Attorney General), 2017 FCA 230 at para 5. III. Analysis A.

Did the CMJ make a reviewable error in striking the claim as against theIndividual Defendants? [10] At paragraph 2 of the Order, the CMJ struck the claim as against the Individual Defendants without leave to amend. [11] The reasons given for that part of the Order were provided at paragraphs 64 to 69 of the decision as follows: IX.

Personal Liability [64] In order to find an officer or director personally liable, the officer or director must have engaged in the willful andknowing pursuit of a scheme that constituted infringement and that reflected an indifference to the risk of it (MentmoreManufacturing Co, Ltd v National Merchandise Manufacturing Co. (1978), (FCA), 40 CPR (2d) 164 at174 (“Mentmore”). [65] It is well established that the directing minds of corporations cannot be held civilly liable for the actions of thecorporations they control and direct unless there is some conduct on the part of those directing minds that is either tortious initself or exhibits a separate identity or interest from that of the corporations such as to make the acts or conduct complainedof those of the directing minds (Tommy Hilfiger Licensing Inc v Produits de Qualité IMD Inc, 2005 FC 10 at paras 140-142). [66] The mere fact that individual defendants may be sole shareholders and directors of a company is not, by itself, enoughto support an inference that the company was their agent or instrument in the commission of acts of infringement, or thatthey authorized such acts, so as to make themselves personally liable (Mentmore at para 24; Petrillo v Allmax Nutrition Inc,2006 FC 1199 at para 32). [67] Personal liability of directors is exceptional, even if it appears to a plaintiff that an individual’s conduct is deliberate and uncooperative (Monsanto Canada Inc. v Schmeiser, (2001) 2001 FCT 256 , 12 CPR (4th) 204 at para 114; aff’d2002 FCA 309 and 2004 SCC 34). [68] While the Proposed Claim makes a number of allegations against the personal defendants, the pleaded misconduct is inrelation to the operation of the business.

The Proposed Claim does not contain sufficient material facts to establish that theactions of the individual defendants were independently tortious, that the corporation was used as a shield to protect themfrom liability, or that the corporate veil should be pierced. Their inclusion as parties gives the impression of an aggressivelitigation tactic. Given the number of opportunities the plaintiffs have had to particularize these allegations and have notdone so, I am not persuaded that there is even a scintilla of a cause of action against the individual defendants.

Theseallegations will be struck without leave to amend. [69] In note that, in the Amended Claim, one of the defendants is identified as “Nematpoor Zahra”. In the documents filedby the defendants, this defendant is identified as “Nematpoor Zajra”. No order has been made to amend the style of cause. Iwill therefore use the spelling in the originating document.

In any event, the claim as against this person is struck withoutleave to amend. [12] As set out in these paragraphs, the CMJ’s determination that the claim as against the Individual Defendants should be struck withoutleave to amend was based on the law relating to the personal liability of officers and directors of a corporation.

The CMJ found that thatthere were insufficient material facts pleaded to establish that the actions of the Individual Defendants "“were independently tortious,that the corporation was used as a shield to protect them from liability, or that the corporate veil should be pierced”". [13] However, the Proposed Claim pleads that Prestige is a general partnership in Ontario and that the Individual Defendants arepartners of that general partnership.

Paragraphs 6, 7, and 10 of the Proposed Claim read as follows: 6) The defendant Prestige MD Clinic (hereinafter “PMDC”) is a general partnership in Ontario, which operates two (2)salon businesses under the name Prestige MD Clinic at premises located at 7191 Yonge Street, Unit no. 501 in Thornhill inthe Province of Ontario, L3T 0C4 (hereinafter the “Yonge Clinic”), and at 1385 Harmony Rd, Oshawa, in the Province ofOntario, L1H 7K5 (hereinafter the “Harmony Clinic”). 7) The partners are Shekarsaraei Sina, Salehi Mohammad Reza, Nematpoor Zahra, and Safariamin Atefeh (hereinafter the“General Partners”).

[...] 10) The defendants are all general partners in Prestige MD clinic and are the directing mind of the business. [14] These facts from the Proposed Claim are consistent with facts from the original claim and amended claim and are facts that wereadmitted by the Defendants in their statement of defence and counterclaim and amended statement of defence and counterclaim. [15] On a motion to strike, the facts in the statement of claim are to be taken as true, unless they are manifestly incapable of beingproven: R v Imperial Tobacco Canada Ltd, 2011 SCC 42 at para 22; Operation Dismantle Inc v The Queen, (SCC),[1985] 1 SCR 441 at 455.

This is particularly so where facts are admitted as being true. In this case, the admitted facts are that Prestige isa partnership and that the Individual Defendants are general partners of that partnership. [16] The Defendants seek to introduce a further document on this appeal (purported articles of incorporation for Prestige MD Clinic Inc),to suggest that Prestige is an Ontario corporation despite its admission in the statement of defence to the contrary.

This evidence was notpart of the motion record before the CMJ and could not have factored into his decision. [17] As set out in David Suzuki Foundation v Canada (Health), 2018 FC 379 [David Suzuki] at paragraph 36, absent exceptionalcircumstances, an appeal of a Prothonotary’s Order is to be decided on the basis of what was before the Prothonotary and not newevidence: James River Corp of Virginia v Hallmark Cards, Inc, (FC), [1997] 72 CPR (3d) 157 (FCTD), [1997] FCJNo 152 at para 32; Carten v Canada, 2010 FC 857 [Carten] at para 23.

Exceptional circumstances include consideration of whether theevidence: could not have been made available earlier; will serve the interests of justice; will assist the Court; and will not seriouslyprejudice the other side: David Suzuki at para 37; Carten at para 23. Evidence will assist the Court where it has an impact on the meritsof the appeal: David Suzuki at para 38. [18] In this case, the relevance of the purported articles of incorporation is not accepted by the Plaintiff as the document is dated after theinitial statement of claim was filed and post-dates the activities on which the claim is based.

In my view, the document is insufficient onits own to supplant the admission made in the Defendants’ pleading. Rather, this is a matter that will need to be addressed on oraldiscovery, which has not yet taken place. Based on the facts that were before the CMJ, it could not be concluded that the IndividualDefendants were not partners but were instead officers and directors of a corporation.

This has not changed even with the purported newevidence. [19] The CMJ cited the legal principles from Mentmore at para 174; Tommy Hilfiger Licensing Inc v Produits de Qualité IMD Inc, 2005FC 10 [Tommy Hilfiger] at paras 140-142; Petrillo v Allmax Nutrition Inc, 2006 FC 1199 at para 32; and Monsanto Canada Inc. v Schmeiser, (2001) 2001 FCT 256 , 12 CPR (4th) 204 at para 114; aff’d 2002 FCA 309 and 2004 SCC 34 correctly, all of whichapply to the requirements for personal liability of directors of a corporation. He made no error of law when he stated the principles fromthis jurisprudence.

However, he misapplied these legal principles to the case at hand. [20] Subsection 10(1) of the Partnerships Act, RSO 1990, c P-5 [Partnerships Act] provides that every partner in a general partnership isliable jointly with the other partners for all debts and obligations of the firm incurred while the person is a partner. [21] Pursuant to

section 11 of the Partnerships Act, where any wrongful act or omission of a partner acting in the ordinary course ofbusiness, or with the authority of his co-partners, causes loss or injury to a person who is not a partner of the firm, or any penalty isincurred, the firm is liable to the same extent as the partner committing the wrongful act or omission. [22] Under

section 13 of the Partnerships Act, every partner is jointly and severally liable with its co-partners for everything for whichthe firm, while the person is a partner, becomes liable under

section 11. [23] By treating the Individual Defendants akin to officers and directors of a corporation, the CMJ erroneously concluded that theProposed Claim did not plead sufficient material facts to establish a cause of action in respect of the Individual Defendants. He waslooking for material facts relating to independent tortious action by the Individual Defendants in line with the principles set out inMentmore and Tommy Hilfiger instead of applying the principles set out in subsection 10(1) and sections 11 and 13 of the PartnershipsAct.

In my view, this amounted to an error of mixed fact and law that was palpable and overriding error in nature as it was at the core ofwhy the claim against the Individual Defendants was struck without leave to amend. [24] The Defendants argue that a partnership is not a legal entity that is separate and distinct from its partners such that it would requireeach partner to be named separately in the style of cause pursuant to Rule 67(2) of the Rules. They assert that naming each partnerseparately signalled to the CMJ that Prestige was a separate party from the Individual Defendants and was in fact a corporation.

While Iagree that naming Prestige along with the Individual Defendants may be redundant (Rule 111.1 of the Rules), in my view, theDefendants’ inference that the CMJ believed Prestige to be a corporation is not supported by the CMJ’s reasons.

To the contrary, theCMJ noted in his introductory paragraphs that the claim asserted that Prestige was a general partnership in Ontario and that theIndividual Defendants were alleged to be partners of Prestige. [25] The Defendants assert that the CMJ was not required to accept as true that the Individual Defendants were general partners withoutfurther material facts to support this. In the face of the admission made in the statement of defence and counterclaim and thejurisprudence referenced earlier, I cannot accept this argument.

There is no indication from the CMJ’s reasons that he considered theadmission made in the statement of defence, but did not accept it because of other known evidence. [26] I agree with the Plaintiff, the CMJ made a reviewable error in striking the claim as against the Individual Defendants, without leaveto amend, on the basis of the supporting reasons given in paragraphs 64 to 69 of the decision.

While there would be a redundancy innaming both the partnership and the general partners to that partnership as defendants in the style of cause based on Rules 111.1 and67(2) of the Rules, in my view this is a matter for which leave should have been granted to make an amendment to the style of cause.Paragraph 2 of the Order and its supporting reasons will accordingly be set aside.

B. Did the CMJ make a reviewable error relating to the costs awarded? [ 27 ] As noted by the Defendants, an award of costs is " “quintessentially discretionary” " : Alani v Canada (Prime Minister) , 2017 FCA 120 at para 11 . Rule 400 of the Rules provides the decision-maker with full discretionary power over the amount and allocation of costs.

I agree with the Defendants the award of costs is reviewable on the same appellate standards and will not be set aside absent an error of law or a palpable and overriding error of fact or mixed fact and law. [ 28 ] In this case, it is clear from the CMJ’s reasons that the costs awarded related to the conduct of the Plaintiff on the motions and the delay in bringing the proposed pleading amendments.

As stated by the CMJ: [71] On one hand, the defendants could have avoided much of the procedural wrangling that has occurred over the last 18 months by bringing their motion to strike/particulars when the Original Claim was served.

But pleadings motions are discouraged, and there is something to be said for a party just jetting on with it, even though that may add time and expense to the discoveries. [72] The real obstacle to this matter not moving forward is the continuously evolving statement of claim. [73] The plaintiffs should have known from the outset that Pollogen was a necessary party to the proceedings, and that it was necessary to clearly identify the copyright and trademark rights that are alleged to have been infringed.

The shifting sands of the plaintiffs’ allegations, which still do not meet the basic requirements of pleading, have needlessly added delay and expense. [74] I take particular issue with the plaintiffs’ late presentation of the Proposed Claim in their reply materials on the motion to strike. [75] The defendants were substantially successful on the motion, and will be prejudiced by the delays associated with the further amendments to the statement of claim. Such prejudice can be addressed in costs. I award costs of both motions to the defendants, fixed at $5,000.00, payable forthwith.

Costs will be payable by Dermaspark, the only plaintiff at the time of the motions were brought. [ 29 ] Even with my earlier finding, the Defendants remain substantially successful on the motions and the CMJ’s comments still remain in full effect. [ 30 ] In my view, the CMJ is best positioned to determine whether the award of costs is justified relating to the surrounding circumstances and the conduct of the proceeding. I see no basis to disturb this finding. [ 31 ] As to the current motion, the Plaintiff did not request costs while the Defendants did.

The Defendants argued that the Plaintiff’s motion materials did not include all of the required documents and did not comply with Rule 364 of the Rules . I do not consider this complaint to be sufficient to justify the award of costs that the Defendants are requesting. There are other means under the Rules to raise an irregularity with a party’s motion materials. [ 32 ] In my view, the motion was of divided success. I will therefore exercise my discretion and will not award any costs for the present motion. ORDER THIS COURT ORDERS that 1 .

The motion is granted in part and paragraph 2 of the June 6, 2022 Order of the CMJ is set aside along with the underlying reasons at paragraphs 64 to 69 of the decision supporting that paragraph. 2 . The Plaintiff is granted leave to serve and file a fresh as amended statement of claim that includes claims for trademark and copyright infringement, as well as punitive damages, under the directions provided in the June 6, 2022 Order as supplemented by these reasons. 3 .

The deadline for the Plaintiff to serve and file a fresh as amended statement of claim is hereby extended to thirty (30) days from the date of this Order. 4 . The remainder of the motion is dismissed. 5 . There shall be no order as to costs. "Angela Furlanetto" Judge FEDERAL COURT

FEDERAL COURT SOLICITORS OF RECORD DOCKET: T-1194-20 STYLE OF CAUSE: DERMASPARK PRODUCTS INC. v PRESTIGE MD CLINIC, SHEKARSARAEI SINA, SALEHI MOHAMMAD REZA, NEMATPOOR ZAHRA and SAFARIAMIN ATEFEH MOTION IN WRITING CONSIDERED AT TORONTO, ONTARIO PURSUANT TO RULE 369 OF THE FEDERAL COURTS RULES ORDER AND REASONS: FURLANETTO J. DATED: NOVEMBER 14, 2022 WRITTEN REPRESENTATIONS BY : Jonathan Weingarten For The Plaintiff/ DEFENDANT BY COUNTERCLAIM Michael Chevalier FOR THE PLAINTIFF/ DEFENDANT BY COUNTERCLAIM John H.

Simpson Stephen Cooley For The DefendantS/ PLAINTIFFS BY COUNTERCLAIM SOLICITORS OF RECORD : Jonathan Weingarten Law P.C. Barristers and Solicitors Vaughan, Ontario For The Plaintiff DEFENDANT BY COUNTERCLAIM Pinto Legal Barristers and Solicitors Westmount, Québec FOR THE PLAINTIFF DEFENDANT BY COUNTERCLAIM Shift Law Professional Corporation Barristers and Solicitors Toronto, Ontario For The DefendantS/ PLAINTIFFS BY COUNTERCLAIM